In the increasingly competitive online grocery delivery space where profitability can be elusive, seconds matter more than ever.
At Peapod, executives are collecting, parsing, tweaking and meticulously studying every bit of data they can find as the Chicago company engages in a high-stakes battle with fast-moving, deep-pocketed challengers, including AmazonFresh, Instacart and FreshDirect. The numbers may lack the visual stimulation of assembling or delivering groceries, but they're just as important to Peapod as the e-grocer and its competitors fight to squeeze every last dollar they can from their operations.
"If I’m giving [our drivers] an executable plan and we’re delivering at 95% [on time,] the customer is going to be happy," Paul Kapellas, senior manager for transportation planning at Peapod, told Food Dive. "If I’m late ... then I’m going to have a really pissed off customer, and the last thing I want to do is run the risk of them never using Peapod again."
Data: What is it good for?
In a room tucked inside Peapod's spacious new headquarters overlooking the Chicago River, 16 computers and five televisions mounted on the wall spit out real-time information, including weather updates, the pace at which orders are coming in and what percentage of delivery slots have been sold in each of the 24 markets where the company delivers groceries.
This abundance of data (collected by a complex set of algorithms) is crucial to helping employees plan deliveries for the next day. It tells workers how full the hundreds of Peapod trucks will be, what they’ll be carrying and what are the most efficient routes for them to take. It enables Peapod to arm each driver with an incredibly detailed outline for their trip, including how many miles they will travel each day, how long it will take, the time and distance between each delivery and the number of minutes they will spend at each stop.
As Peapod orders stream in each day, some of them are reviewed for accuracy. Addresses placed incorrectly on a GPS map are checked to determine whether a particular stop may need to be modified to give the driver more time to get to or complete a delivery.
"The worst thing I can do is send a driver to the wrong address that costs him 10 or 15 minutes when we're planning down to the minute on these routes," Kapellas said.
The software used by Peapod is amazingly detailed. Technicians can zoom in on a specific intersection to give a driver a few more seconds on a route. If it finds, for example, that a right turn is routinely slowed by a heavy stream of pedestrians crossing the street, it can suggest an alternate route or increase the amount of time budgeted. When a particular road is bogged down by construction, that also can be factored into the planning.
The information collected by Peapod helps with assembling orders and determining how many stops the company can make. When a customer requests a particular brand of turkey sliced to a certain specification, that is relayed to one of Peapod's four warehouse fulfillment centers and 21 warerooms that are attached to a physical store (Peapod is owned by Netherlands-based grocery store giant Ahold Delhaize) so workers can get it ready for final order assembly later on. And if a particular area is suddenly running low on two-hour delivery windows, the region is highlighted in red on one of the TV screens, enabling Peapod to contact the local facility so it can decide if it wants to schedule more drivers.
“The more revenue that’s on the route in terms of product, the more profitable I’m going to be," Kapellas said. "All I can control is making sure I get as many orders on the truck as possible, which is why it goes back to why are we planning to the second? Because I want to squeeze every stop on there while still making an accurate plan.”
Peapod's reliance on data extends into other parts of its business, too. The online grocer, for example, uses information it collects to get the optimal product mix at its warerooms, where space is limited and demand changes depending on the time of the year or season.
And with grocery shopping being a largely habitual activity, Peapod is able to identify products routinely purchased by the consumer and automatically fill their carts with those items if the shopper chooses. Similarly, a search algorithm personalizes each query by pushing items commonly purchased to the top of the results list. This convenience extends into value where a person can see everything that is on sale or being promoted based on their past purchases with a single click.
Can Peapod avoid the fate of its former competitors?
The detailed planning and smart software utilized by Peapod is a far cry from what the company used when it was founded by brothers Thomas and Andrew Parkinson in 1989. Employees first delivered the company’s product list to customers by hand on a floppy disk and would grab items from nearby store shelves before delivering the orders.
It wasn’t until 1996 that the company launched its website — making it one of the first internet startups. It didn't take long before executives watched grocery delivery catch on with other dotcom entrepreneurs looking to strike it rich. Webvan, HomeGrocer, Kozmo, among others, entered the space, only to collapse after they expanded too fast, failed to grasp the ever-changing market and watched as free-flowing cash spigots suddenly dried up following the dotcom collapse.
Peapod managed to emerge from the carnage as one of the few survivors, but it hardly did so unscathed. The financially strapped company was burning through cash and reeling from the resignation of its chief executive officer when Ahold, which merged with Delhaize in 2016, purchased a majority stake in the company in 2000. It bought the rest a year later, giving the struggling online grocer time to focus on improving its operations rather than worrying about finding new sources of funding.
"If you were to chase them and try to follow every shiny new thing that the competitor or competitors are doing in the market place, that's going to end in tears because, quite frankly, what a lot of the players are doing, they're throwing stuff at the wall and seeing what sticks."
Chief marketing officer, Peapod
"Only the paranoid survive"
Carrie Bienkowski, Peapod’s chief marketing officer who joined the company in 2014 from eBay, defended its roadmap for growth, and noted that while competitors have come and gone, Peapod remains a viable, growing operation.
"I like to say that only the paranoid survive in this industry. I have never seen the rate of change that I've seen in the last two years in, you know, boring old grocery," she said. "If you were to chase them and try to follow every shiny new thing that the competitor or competitors are doing in the market place, that's going to end in tears because, quite frankly, what a lot of the players are doing, they're throwing stuff at the wall and seeing what sticks."
While Peapod is the largest online grocery player by sales, there is concern that the company and its owner, Ahold Delhaize, are not moving fast enough to stay ahead of the competition. Analysts also question whether the online grocer is failing to tap into its trove of valuable consumer data to help get it closer to profitability and promote itself in Ahold Delhaize stores such as Giant and Stop & Shop.
A recent visit to a Washington, D.C. Giant store just a few blocks from the U.S. Capitol had a single sign tucked away by two elevators touting Ahold Delhaize's Peapod service and the partnership it has with Instacart. There was no further visible evidence of its connection to Peapod, which focuses more on larger deliveries, throughout the rest of the store.
Analysts wonder if Ahold Delhaize is doing enough to take advantage of its one-of-a-kind resource. But according to company officials, the e-grocer remains a vital tool. Last week, Stop & Shop unveiled 21 remodeled stores in Hartford, Connecticut, all of which feature curbside pickup for Peapod orders.
"Our primary e-commerce lever is Peapod, whether it's home delivery or in-store pickup," Mark McGowan, president of Stop & Shop, told Food Dive. "All of our stores [in Hartford] have seven-day in-store pickup available, and we are continuously working to expand our e-commerce offer for our customers."
Peapod is posting growth in most of the 24 markets where it already has an established presence, according to the company. It is able to reap synergies from its brick-and-mortar stores and its online presence to attract customers who shop in both physical locations and online.
"We believe that we do have an inherent advantage versus" the competition, Bienkowski said.
Still, analysts interviewed by Food Dive characterized Ahold Delhaize's Peapod strategy as cautious, and said this could create long-term challenges as Amazon, Walmart, Kroger and Instacart, among others, move more aggressively to plot out their future in e-commerce.
Elley Symmes, an analyst at Kantar Consulting, told Food Dive she is surprised by Peapod's failure to execute across key parts of its business — making it one of Ahold Delhaize's "most underutilized assets."
"Ahold Delhaize continues to shoot themselves in the foot (at the pace) at which they move, and Peapod is no exception to that. It’s a similar picture for Peapod in the sense that they are trying to do just enough to keep up, and that’s going to, actually in the longer term, put them behind their competition."
Analyst, Kantar Consulting
While Peapod has excelled at investing in backend operations like warehouses, at rolling out a more dynamic pricing structure and working closely with suppliers to promote their products on the website, the online grocer struggles in many other key areas.
For example, Symmes said Peapod has a mobile app that reflects its ties to the personal computer, unlike Amazon’s PrimeNow app that was developed as a mobile-first platform, creating a more user-friendly experience. She also questioned whether Ahold Delhaize is devoting too much of its capital spending to store remodels, price decreases and even promotions instead of using the cash to accelerate its e-commerce platform.
"Ahold Delhaize continues to shoot themselves in the foot (at the pace) at which they move,” Symmes said. "It’s a similar picture for Peapod in the sense that they are trying to do just enough to keep up and that’s going to, actually in the longer term, put them behind their competition."
A road to profitability?
Kantar Consulting estimates Peapod, which posted sales of $833 million in 2017 and is growing by a compound annual growth rate of 8.4%, could see revenue top $1.2 billion by 2022. But by this time, AmazonFresh is forecast by Kantar to surpass Peapod as America's largest online grocery player as it mines further synergies from its $13.7 billion purchase of Whole Foods last year.
Ioannis Pontikis, a Morningstar analyst in Amsterdam who covers Ahold Delhaize, said Peapod could be breakeven by 2023, but he acknowledges that projection could be a bit aggressive.
"Seeing the kind of activity and the kind of investment that has to be done ... maybe that's a bit optimistic at the end of the day," he said.
As more players deepen their presence in the space, marketing becomes more difficult, advertising more expensive and customer acquisition costs much higher than before, Pontikis noted. That can pose a challenge for Ahold Delhaize, which is more financially focused and operates with a profitability-driven mindset, a target that can be elusive these days in online grocery.
Pontikis said stores have a higher proportion of fixed costs, better margins and a greater likelihood of profitability than their online operations, as the latter’s costs are more variable throughout the supply chain. For these reasons, grocers like Ahold Delhaize remain primarily focused on driving traffic to their brick-and-mortar locations.
Ahold Delhaize "will be skeptical to invest more than they should," Pontikis said. "The company was slow in adopting those new systems and techniques and methodologies (to Peapod), and if you think about it, that's normal. They are in the food and grocery business, so they are just trying to catch up now."
Doing what works
Despite the challenges, there are many areas where Peapod is in an enviable position.
Peapod generates larger basket sizes, attracts younger and coveted ethnic demographics and sells a larger percentage of fresh items like produce, dairy and meat that distinguish it from other pure online food retailers, according to Kantar Consulting. This can help draw traffic into stores or encourage customers to use its click-and-collect service, giving the grocery giant a hand in many of the ways shoppers today can pick to get their food and beverages.
To Peapod, it's a sign that its strategy, which has worked for decades, remains successful today — and now is being emulated by its competitors. The question is, will that strategy ultimately pay off for the company again and allow it to emerge from the latest online grocery skirmish as one of the winners?
"There are a lot more players obviously entering the market and that has been a big change, and the way people are developing their go-to-market strategies has also changed dramatically," Bienkowski said. "I think the overall headline is it's the validation of the model that we have been following for many, many years."